Home >Budget >News >Budget 2021: How higher FDI cap in insurance will benefit policyholders

Finance Minister Nirmala Sitharaman in the Union Budget for 2021-22 on Monday proposed to liberalize foreign direct investment (FDI) in Indian insurance companies to 74% from the existing 49%. While the much-awaited move is expected to provide access to fresh capital to some of the insurers, experts believe that the decision may also benefit individual policyholders.

According to Prasun Sikdar, managing director and chief executive officer, ManipalCigna Health Insurance, “The government’s move to increase the FDI limit will further attract foreign capital where required, ensure higher penetration and bring a new wave of transformative change to create a more value-based affordable healthcare for all Indians."

The life insurance sector in India was opened up two decades back after the government had first allowed foreign companies to own up to 26% in Indian insurers in 2000.

Industry experts believe the government’s latest move will make the sector more competitive, transparent and efficient. “As an industry that plays an important role in securing the nation, the proposed increase will provide companies with committed funds to improve the penetration of insurance in the country. It will also bring in better technical know-how, innovation, and new products to the advantage of the consumers," said Prashant Tripathy, managing director and chief executive officer, Max Life Insurance.

The FDI limit increase is also expected to provide access to fresh capital to some of the insurance companies, which are struggling to raise capital from their existing promoters. This would not only increase the solvency position for some insurers but would provide long-term growth capital for other companies to invest in newer technologies.

“These technologies would not only help in managing losses but also in customer acquisition and thus insurance penetration. Further, the foreign partner would be more willing to transfer its technology once it becomes a majority shareholder. The additional funds could be used to invest into technology to adapt to the evolving customer needs like responsive service through digital platforms," said Parimal Heda, chief investment officer at Digit Insurance.

Policyholders in tier II and tier III cities are also likely to get a leg up via this move, as the funds infused are expected to help in bridging the demand-supply gap in insurance. “Moreover, the funds infusion will also help in digitization and technology integration in the sector, which is the need of the hour for empowering insurance," said Balachander Sekhar, CEO and co-founder,, an online insurance aggregator.

According to experts, with insurance being a well-regulated sector, attracting foreign capital would be more convenient for insurers.

However, industry leaders are hoping for a quick implementation of the proposal. When the sector was liberalized from 26% to 49% in 2014, it took more than a year for the necessary guidelines to come in place. The process was relatively faster when FDI in insurance intermediaries was liberalized to 100% in 2019.

“What needs to be seen now is how soon the government and the insurance regulator announce the revised framework in relation to the control and management of insurance companies. We are anticipating restrictions in relation to nationality and residency of directors and certain KMP, related party transactions, and perhaps the repatriation of dividends," said Indranath Bishnu, partner at Cyril Amarchand Mangaldas.

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